ETF Specialist

3 Shades of Value

Daniel Sotiroff

Value investing has long been associated with excess rates of return. Generally speaking, a value-oriented approach involves buying stocks that are cheap according to some measure of intrinsic value in hopes that they will one day appreciate to their fair value. But that day may be a long time in coming--if it ever comes at all. Patience is a requirement, and the past decade has tested the strongest advocates of value investing. For the 10-year period through June 2018, the Russell 1000 Value Index underperformed the broader Russell 1000 by 1.7 percentage points annually. Adding insult to injury, it was also more volatile and suffered deeper drawdowns during the depths of the global financial crisis.

By measure of the same Russell Indexes, value continued to have a difficult time as it emerged from its postcrisis nadir. From March 2009 through June 2018, the Russell 1000 again outpaced the Russell 1000 Value Index, in this instance by almost 1.6 percentage points annually. However, drawing the conclusion that all value strategies underperformed during this period would be shortsighted. Not all value strategies are created equal.

Daniel Sotiroff does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.